New Buffalo budget digs budget hole; where is the control panel?

This looks like Groundhog Day for Buffalo budgets. The proposed budget for 2024-2025 once again creates a budget hole that could turn into a crisis in the not too distant future.

While the city of Buffalo’s financial crises of all kinds date back at least 50 years, the next one has its roots 12 years ago. The city’s financial problems in the early 21st century led to the state’s creation of the Buffalo Fiscal Stability Authority (BFSA) in 2003. Over the next nine years, the Authority (aka the Board of Control) took a strong hold on the city’s finances, freezing the union. contracts and manage all contracts valued at $50,000 or more. In 2012, the BFSA considered that the city’s finances were stabilized and changed its role to an advisory one. In doing so, the Authority left the city with a reserve fund of approximately $100 million.

Following the actions of the BFSA, the municipal administration and the municipal council once again had full control of the budget. Over the next eight years, services were maintained or improved, property taxes remained relatively stable, and the fund balance was completely depleted.

In August 2020, I published an article on the evolution of the city’s finances. I pointed out the dilemma that stable services/slight tax increases/fund balance depletion creates. I suggested that the BFSA should reconvert itself into a supervisory board.

The city’s 2020-2021 budget included $65 million in federal stake funds. Such questions were discussed from the early days of the pandemic. But then, in March 2021, Congress approved President Joe Biden’s relief funding plan, known as the American Rescue Plan or ARP, which sent money to families, businesses and governments. Buffalo’s share of that funding was $331 million. Some of the money could be directed to municipal budgets that have lost revenue due to slowing residential and commercial tax and fee payment activity and employee layoffs.

In August 2021, the Common Council approved Mayor Brown’s plans for the use of the $331 million ARP. Various infrastructure projects and community organizations were included in the plan. Most of the funding, $100 million, was earmarked to replace the city’s lost revenue.

It turned out that the city government used $162,970,308 in ARP money to replace revenues between 2020 and 2024. The negative effects of the pandemic on the city’s finances, as shown in the budgets in those years did not match the use of federal funds.

So here we are in May 2024, as the Buffalo Common Council prepares to modify and approve Mayor Brown’s 2024-2025 budget. This budget includes an additional $25.8 million in ARP funds, which will deplete the accounts. This will bring the city’s total five-year budget use of ARP money to $188.7 million.

Geoff Kelly Investigation Station Last week, we took an in-depth look at (Buffalo’s budget raises taxes, raids reserves: Investigative Post) the city’s proposed new budget. He notes the use of ARP money and also points out that the budget will use $14.9 million in fund balances. The PRA and fund balance, totaling $40.7 million, is what is classified in public finance as “one-off revenue,” meaning it won’t be there next year.

Kelly also noted several other revenue and expenditure items in the city’s proposed budget that are “uncertain”:

• Parking meter revenues, which could fall short by about $2 million
• Parking ticket revenue could drop by $1 million
• Traffic fines could be reduced by around $1 million
• Sales tax revenue is expected to increase by $2 million, but has recently declined, adding perhaps $5 million to the budget hole.
• Police and fire budgets are increasing, as are public works budgets.
• The city will begin in the new year to repay a five-year bond that was sold to fund a $43 million settlement of the lawsuit over the tragic police officer crash.

Of course, this is all on top of the proposed 9% property tax increase.

So, you might ask: what is the BFSA going to do about all this? Good question!

The law which created the BFSA provides in particular that:

“the mayor shall prepare and submit to the authority a four-year financial plan, and the mayor's proposed city budget, not later than the date required for submission of such budget to the council pursuant to the city charter. Such financial plan shall …contain actions sufficient to ensure with respect to the major operating funds for each fiscal year of the plan that annual aggregate operating expenses for such fiscal year shall not exceed annual aggregate operating revenue for such fiscal year.”

The city's proposed new budget includes $40.7 million in "one-time revenues," which means that the budget does not have "aggregate operating expenses" that match "aggregate operating revenue."  One-time revenues are not operating revenue.

The Four-Year Financial Plan included with the new budget notes that “Buffalo is at a critical point… This is not the time to cut.  We must continue to invest.”  The Plan projects that over the next four years total city spending will increase by just 2.3 percent ($14.6 million).  Combined Police and Fire Departments expenditures are expected to go up 5.4 percent.  Growth in employee fringe benefit costs will be 2.5 percent.   Debt service costs will remain steady at $88,000 per year, which seems to make no allowance for the cost of the massive bond repayment required by the $43 million settlement.  Following the nine percent increase in property taxes this year that revenue is projected to increase by an additional 7 percent through 2028.

The enabling law of the BFSA also provides that:

“A control period…may be reimposed during an advisory period if the authority determines at any time that a fiscal crisis is imminent or that any of the following events have occurred or that there is a substantial likelihood and l imminence of such occurrence: (a) the city has failed to adopt a balanced budget, financial plan or budget amendment as required by sections thirty-eight hundred fifty-six and thirty-eight hundred fifty-seven of this title…(c) the city has incurred an operating deficit of one percent or more in the overall operating results of any significant fund of the city or covered agency during its fiscal year financial, assuming that all revenues and expenditures are reported in accordance with generally accepted accounting principles, subject to the provisions of this title… or (e) the city will have violated any provision of this title.

We can justify by “a budget crisis is imminent. We can also affirm, in the event that the Common Council approves the 2024-2025 budget in substantially the same form as that proposed by the mayor, that “THE the city has failed to pass a balanced budget, financial plan, or budget amendment.

It will be some time before the City’s accounts are closed for 2023-2024. This budget will spend approximately $32.2 million in ARP funds to balance the budget. Technically, this means that the budget had “an operating deficit of one percent or more in the overall results of operations of any major city fund. This trigger, combined with the 2024-2025 budget imbalance, could justify a decision by the BFSA board that a control period should be reimposed.

But then there is this. By law, the BFSA has nine members, including the mayor and Erie County Executive as ex-officio members. The other seven members are appointed by the governor, with three to be recommended by the state comptroller, the speaker of the Assembly and the majority leader of the state Senate.

However, currently this council only has five members, including the mayor and the county executive. The other three members have expired terms – two which ended in 2017 and the third which ended in 2023. There are four vacancies on the Council, including that of president.

The Council requires five members to constitute a quorum to conduct its business. Among the five, there is currently the mayor. It seems unlikely that the mayor would want to take action imposing a monitoring period, even if the other four members wanted to act.

Many players are involved in this dilemma: the mayor, council members, governor, state comptroller, and city comptroller. The corrective action options are not pleasant. Doing nothing at the moment is also an option.

There is no magic like ARP on the horizon, so putting things off can only last for a short time. This should be very interesting.

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